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The Public Debt Clause and Other Things You Can’t Take to the Bank

Monday the Federalist Society hosted a teleforum on the debt ceiling with Senator Mike Lee, David Rivkin of Baker Hostetler, and Professor Richard Epstein. The call featured an interesting debate between Rivkin and Epstein on Section 4 of the 14th Amendment, also known as the Public Debt Clause. Unfortunately, the sound quality on Epstein’s line was poor. Fortunately, as one of his former students, I have some experience in trying to follow him while only being able to catch every other word or so.

Rivkin took the position that the United States is “constitutionally incapable of default,” relying on the Public Debt Clause and Perry v. United States, 294 U.S. 330 (1935). As a consequence, he maintained, bond investors should be reassured that there will be no default in the event that the debt ceiling is not raised.

It is important to recognize what Rivkin is not saying here. He is not saying that default is factually impossible. If I am a bond investor (which I am, come to think of it), and Jack Lew decides not to write me a check when my interest payment is due, then there is a default on the bond (at least as I understand the meaning of the term). Lew’s failure to write me a check may be illegal or unconstitutional, but I still don’t have the check, and I can’t deposit the Public Debt Clause in my bank account.

What Rivkin is saying is that I can go to the Court of Claims and get a judgment against the United States in the amount of whatever money I am owed under the bond. But even if that is true, the ability to go to the Court of Claims and get a judgment is worth considerably less than the check from Jack Lew. The former involves time, money, and uncertainty, and if/when I get the judgment, I still don’t have something that I can deposit into my bank account.

Let me give you an analogy. I have a clear legal right under the Freedom of Information Act to make information requests to federal agencies and get a response within specific time frames established by the law. I may or may not have the right to get the information I request, but I have an indisputable right to get either the information or a response explaining why I am not getting the information. So, as you may recall, two years ago I sought documents from the Treasury Department relating to any analysis it may have done of the Public Debt Clause or its applicability to the debt ceiling. Although I made many phone calls to the Treasury Department’s Chief FOIA officer, Hugh Gilmore, I was unable to learn anything other than that my request had been sent to the General Counsel’s office.

Finally, about 4 months ago, I enlisted the help of the Office of Government Information Services, an agency established by Congress for the specific purpose of resolving FOIA disputes. I didn’t necessarily think that OGIS would be able to get me the documents I asked for, but, surely, I thought, the Treasury Department would have to either respond to my request or give OGIS some sort of explanation for its failure to do so.

Apparently I was mistaken. Notwithstanding the existence of a clear legal duty (or at least what seems to me and OGIS to be a clear legal duty), Treasury had no more interest in responding to a sister agency than it did to a lowly citizen. And so instead of a FOIA response, an explanation of why there has been no FOIA response, or even an estimate of when I might get a FOIA response, I have this somewhat comical letter from OGIS explaining that it has no power to actually make Treasury do anything.

It is true that, like a bondholder, I could to go to court, and I believe that my chances of prevailing would be very high (probably, see below, higher than the bondholder’s).  But while Treasury might very well take my rights more seriously if I filed suit, the mere fact that I have a legal right does not make Treasury do anything. And if Treasury actually has something it is trying to hide (which I am starting to suspect), even a lawsuit might not change its mind.

Now let’s think about my hypothetical lawsuit against Treasury for defaulting on my bond. It is far from certain that the Public Debt Clause allows me to win this suit. As Professor Epstein noted, the Clause protects the “validity” of the public debt of the United States, but not paying a debt is different than questioning its validity. My problem is not that my bond has been declared invalid, but that there are more creditors seeking money from the United States than there is money to pay them. Therefore, my argument has to be that the Constitution gives me priority over other creditors. It is possible that I could win this argument, but it is far from a slam dunk.

Moreover, even if I am right on the merits, there is no guarantee that the court will give me relief. This should be made plain by Perry itself, which involved a claim by bondholders aggrieved that Congress, at the urging of President Franklin Roosevelt, had abrogated the clause in Treasury bonds allowing bondholders to receive payment in gold. The bondholders argued that the Public Debt Clause prohibited this action, while the Roosevelt administration argued that the Clause only applied to total repudiation of bond obligations. Although the Supreme Court agreed with the bondholders on the merits, it concluded they were not entitled to a remedy because Congress had acted to withdraw gold from circulation generally and eliminated any free market for gold coin. By so doing, it had made it impossible for the bondholders to obtain any profit from being paid in gold instead of dollars. Such “slippery reasoning,” Professor Gerard Magliocca argues in this very interesting article, was essentially a cover for the Court to avoid confrontation with the administration on a matter of intense political controversy, not unlike the result in the Affordable Care Act case.

This is not to say I will be unable to get a remedy in my hypothetical bondholder lawsuit. But the point is, as Epstein emphasized in his reply to Rivkin, litigation involves a significant amount of uncertainty, and bondholders simply cannot be that confident that the courts will redress their grievances.

Moreover, even if I get a judgment, I still don’t have something I can take to the bank. Having a judgment and collecting on the judgment are two different things. The court cannot order Congress to appropriate money, for example, and therefore any remedy they grant is dependent to some extent on Congress’s good faith and willingness to cooperate. See Glidden Co. v. Zdanok, 370 U.S. 530, 570 (1962) (“Art. I, § 9, cl. 7, vests exclusive responsibility for appropriations in Congress, and the Court early held that no execution may issue directed to the Secretary of the Treasury until such an appropriation has been made.”).

Finally, there is always the possibility, however remote, that the executive branch will simply refuse to obey a lawful court judgment. This may not be a huge risk factor at the current time, but it would be odd to rely on Perry as a reassurance for bondholders without acknowledging that Roosevelt apparently had no intention of complying with an adverse judgment from the Court. As Magliocca relates in some detail, Roosevelt “settled on a plan to ignore the opinion until a statute invoking sovereign immunity to bar gold bondholder suits was enacted.” To justify this “radical course of action,” Roosevelt drafted a speech invoking biblical authority to override the Court’s ruling and “asking the nation to join his rebellion against the Court.” Really.

None of this is to suggest that a failure to raise the debt ceiling equates to a default on the public debt, as so many have rashly alleged. To the contrary, it seems to me that the President has the authority, and probably the intent, to ensure that bondholders are paid even if there are insufficient funds to pay all government obligations. However, sweeping assertions about the Public Debt Clause and Perry do little to mitigate any remaining risk. A statute that explicitly requires prioritization would do a good deal more.

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